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Jumping through hoops: The revised Debt Protocol

You may recall last year that the previous consultation on the Pre-Action Protocol for Debt Claims (the Debt Pre-action Protocol) attracted such an uproar that the brakes were applied shortly before it was due to come into effect.

Fortunately for all concerned the Civil Procedure Rule Committee (CPRC) has finally decided to change direction a little and to carry out a further consultation on this important issue. It might seem a small point to some, but changing the way in which the credit industry carries out the business of chasing debts from customers is huge. Get the balance wrong and credit, which is a key ingredient of most businesses these days, will perhaps not dry up but will start to diminish. In a tight economic market we could do without any own goals!

The furore has resulted in further deliberations and a revised Debt Pre-action Protocol has been created, which we are now in a position to consider. As some readers may be aware from previous articles, DWF heavily opposed the initial proposal in the strongest possible terms (a 10-page letter to the CPRC) and such strong opposition seems to be helping – at least it is in part. This new consultation takes place over an eight week period between 2 November 2015 and 11 January 2016 and this article provides you with an overview of the changes and also our take on this hot topic. If you can take part in the consultation, please do.

At the time of the last consultation, the Debt Pre-action Protocol was being considered as part of a wider review of a number of pre-action protocols. We think that might be why it was rushed and why a number of key considerations were missed the first time round. A new committee, which consists of more pro-creditor parties, was formed earlier this year to specifically consider the Debt Pre-action Protocol. The hope here is that the focus will be more targeted and measured. The sub-committee has carefully considered the responses to the initial consultation and prepared the second draft of the Debt Pre-action Protocol.

What are the key amendments to the Debt Pre-action Protocol following the first consultation?

A core principle of the Debt Pre-action Protocol remains that debtors, or alleged debtors, should be provided with sufficient information to enable them to obtain advice prior to the issuing of a claim.

The positive news is that this committee is listening to creditor concerns, which is certainly a marked improvement on the last one. A number of consultees, including DWF, raised concerns last time round particularly in relation to the volume of paperwork and information that creditors would be required to provide to debtors under the original draft Debt Protocol. The obligations placed on creditors were considerable. With postage, paper and increased time spent on cases, it would increase the cost of some pre-litigation debt services by an eye-watering 1000%. It soon became clear that the initial protocol must have been drafted with minimal thought as to how it might practically affect the actual victim in all this – the unsecured creditor.

In response to those concerns, the Debt Pre-action Protocol has thankfully been restructured to reduce the amount of documentation that creditors are required to initially provide. Instead, a two-stage approach is now proposed. Here, some information will be provided to debtors as of right with the letter before action, with other information and documents being available on request. It will also insist that debtors are prompted to consider what information they might wish to ask for when the initial letter is sent.

Debtors will also be provided with an information sheet, designed to set out in plain English, explaining their rights and obligations under the Debt Pre-action Protocol. This is intended to address concerns raised during the consultation. Primarily, the concern was that providing debtors with a copy of the full Debt Pre-action Protocol would be overly burdensome and/or costly for creditors. The Debt Pre-action Protocol was also drafted in language that debtors were unlikely to engage with or understand.

Is version 2 better than its predecessor and is it fit for purpose?

It is certainly an improvement but it is still not saying a great deal. At first glance it seems to break the same problem into two parts rather than get rid of it in anyway. The one positive outcome is that business-to-business debt is still excluded from the protocol. That said however, sole trader debtors are not excluded and so can take the benefit of the protocol which can be seen as a little disappointing. A sole trader is still a business entity after all and it could be argued that they should be treated the same as any other business. It is not difficult to understand that if you buy goods or services from someone then you have to pay for them.

One other disadvantage is that if you are forced to do more as a creditor before you issue proceedings, then part 45 fixed costs (the costs a Solicitor is automatically awarded when a claim is issued for a fixed sum) need to be increased to pay for the additional work. Those costs were set by the judiciary many years ago and were based on a simple letter before action and the drafting of legal proceedings. If clients are forced to do more at the start of proceedings, it could be argued they should be able to recover more in fees from the debtor.

In conclusion, many debtors will take every opportunity they can to delay payment. The protocol as currently drafted will give the “won’t pays” a great chance to spin things out for longer much to all our frustration. Consequently, if they find the hoops, which they will, then creditors will have to jump through them, creditors and disclose everything anyway. Unfortunately, it looks as though the net effect of the proposed changes will be minimal. We will be watching the outcome of this consultation with great interest and will share an update again in due course.

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